As many homeowners request forbearance amid the coronavirus pandemic, some worried what would happen once the relief period lifts. Would they have to pay back all of the missed payments in a lump sum once forbearance ended?
The federal agencies that govern many federal-backed mortgages this week provided guidance that should alleviate many homeowners’ fears.
The Federal Housing Finance Agency said homeowners with mortgages backed by Fannie Mae or Freddie Mac can repay the missed payments when they sell their home, refinance, or reach the end of the loan term — an option known as payment deferral.
Similarly, the Federal Housing Administration is offering to wrap missed payments into a subordinate loan that doesn’t need to be paid off until the first mortgage is paid off. This option applies to FHA-backed loans.
“It’s a positive change, for sure,” said Jeremy Sopko, CEO at Nations Lending Corp. “[They are] doing all they can rightfully do at this time, especially when so little is known about the long-term effects the pandemic may have on the economy.”
The moves come when nearly 4 million homeowners have requested forbearance so far, according to the Mortgage Bankers Association.
“This new forbearance repayment solution responsibly simplifies options for homeowners while providing an additional tool for mortgage servicers,” said FHFA Director Mark Calabria in a press release. “Borrowers who can pay their mortgage should, because missed payments remain an obligation that will ultimately have to be repaid.”
Servicers nationwide can offer this payment deferral option as early as July 1, but they still must evaluate borrowers to see if this option applies to their needs. Other options include reinstatement, repayment plans, or loan modifications.
“At this point, who could argue that the government shouldn’t constantly be looking for the next bit of relief they can give Americans who are financially unstable because of COVID-19?” Sopko said. “This is a good step. My question is what's next?”
The unemployment rate hovers around 14.7%, according to the latest figures from the Bureau of Labor Statistics, and Goldman Sachs predicts that unemployment will peak at 25%.
“The important thing to understand about forbearance is that the bill is still coming. It's just coming a little later,” Sopko said. “But what that does is buy homeowners some crucial breathing room and prevents them from falling into a hole they can't dig their way out of. That's the key.”